Bank AlJazira Q4 net profit of SAR 150 million was down 20.63 per cent QoQ but was up 53.06 per cent on the SAR 98 million recorded in Q4 2012. Total assets rose 18.11 per cent to SAR 59,976 million . Customer deposits were up 18.21 per cent at SAR 48,083 million while loans and advances were up 17.05 per cent at SAR 34,995 million . Investments rose 40.06 per cent to SAR 12,597 million . Earnings per share were up from SAR 1.67 to SAR 2.17 . NCB Capital comments… "Driven by a good 30bps widening in NIMs YoY, BJAZ's NSCI, total operating income and net income growth was strong on a YoY basis. The bank's 4Q13 net income grew 53.4 per cent YoY and stood 6.5 per cent above our estimate. However, it was 6.4 per cent below consensus estimates. Increase in loans and deposit base enabled the balance sheet expansion of 18.1 per cent YoY which was also a contributor to the good bottom line growth. "Widening of NIMs was the main contributor to the top line growth: BJAZ's NSCI grew 34.7 per cent YoY to SAR 332 million , 12.4 per cent higher than our expectations. The growth in NSCI was double that of the reported growth in loan growth. This suggests a significant widening of NIMs; based on the preliminary numbers we estimate an increase in NIMs by 30bps, which is significantly higher than the other banks that have reported results so far. In fact, the second highest increase in NIMs was from SABB which reported a 17bps increase based on our calculations. "We continue to remain concerned on asset quality: Although BJAZ reported provisioning which was below our estimate ( SAR 38 million vs. SAR 50 million ) we continue to be concerned about the bank's asset quality. As of 3Q13, BJAZ reported one of the highest NPL ratio's at 2.5 per cent (vs. peers' average of 1.4 per cent) and one of the lowest coverage ratios at 138 per cent (vs. peers' average of 153 per cent). In addition, the steep widening in NIMs may suggest that the bank is involved in relatively riskier lending. Hence we expect provisions to pick up in 2014E by 38 per cent and limit profit growth to 9.6 per cent YoY for the year in our view. "Loan growth to be restricted going forward given low capital base: Despite the strong lending growth of 17.1 per cent in 4Q13, we expect a slowdown going forward. This is due to the low capital adequacy ratio of BJAZ at 14.8 per cent vs average of 16.7 per cent for the sector, which is a headwind risk for BJAZ. Hence we expect lending growth to slowdown to 13.2 per cent YoY in 2014E. "We are currently Underweight on BJAZ with a PT of SAR 27.8 . Although the bank is rapidly growing its loan and net income, our concerns about lower ROE, weak asset quality and relatively lower Capital base remain. The stock trades at P/B of 1.8x for 2014E, a significant 25 per cent premium to the market (excluding AlRajhi and Albilad) despite reporting 274bps lower ROE."
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